Tag: Reporting regulation


D.C. Circuit Court Upholds Conflict Minerals Decision

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on a Davis Polk client memorandum.

In the ongoing challenge to the SEC’s conflict minerals rule, the D.C. Circuit Court of Appeals, in a 2-1 decision, issued an opinion on August 18 upholding its April 2014 finding that a key aspect of the rule violates constitutional free-speech guarantees, a decision we discussed in this client newsflash.

Last year, the SEC asked the D.C. Circuit to rehear the case in light of the outcome of an unrelated First Amendment lawsuit, American Meat Institute v. United States Department of Agriculture, which addressed the proper standard of review for compelled commercial speech. Stating that it saw no reason to change its analysis in light of the American Meat decision, the court affirmed that it would adhere to its original judgment that portions of the Dodd-Frank Act, under which the rule was promulgated, and the SEC’s final rule, “violate the First Amendment to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have ‘not been found to be ‘DRC conflict free.’’”

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SEC Proposes More Frequent and Detailed Fund Holdings Disclosure

John M. Loder is partner and co-head of the Investment Management practice group at Ropes & Gray LLP. This post is based on a Ropes & Gray Alert.

On May 20, 2015, the SEC proposed new and amended rules and forms (the “Proposals”) that, if adopted, will significantly broaden the type and scope of information reported by registered investment companies. The Proposals, which are summarized below, fall into five categories:

  • New Form N-PORT, which would require registered investment companies to report detailed information about their monthly portfolio holdings and risk metrics to the SEC using a prescribed XML data format.
  • New Rule 30e-3, which would permit registered investment companies to transmit periodic reports to their shareholders by making the reports and quarterly portfolio information accessible online.
  • New Form N-CEN, which would require registered investment companies to report census-type information to the SEC annually, using a prescribed XML data format.
  • Elimination of Forms N-Q and N-SAR, as well as amendments of certain other rules and forms.
  • Amendments to Regulation S-X, which would require standardized, enhanced disclosure about derivatives in investment company financial statements consistent with Form N-PORT.

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Regulation A+ Takes Effect

Thomas J. Kim is a partner at Sidley Austin LLP. This post is based on a Sidley Austin publication authored by Mr. Kim, Craig E. Chapman, and John J. Sabl.

On June 19, 2015, the Securities and Exchange Commission’s (SEC) recently adopted rule amendments to Regulation A under the Securities Act of 1933 (the Securities Act)—colloquially known as “Regulation A+”—took effect. Regulation A is intended to ease the burden of Securities Act registration for small public offerings. These rule amendments, among other things, increase the amount of capital that can be raised in Regulation A offerings from $5 million to $50 million over a 12-month period.

The extent to which Regulation A+ will result in issuers and other market participants actually using Regulation A to raise capital will depend on a number of factors—including how it compares to other methods for raising capital, how the SEC Staff will administer the offering process and the market’s acceptance of Regulation A-compliant offering materials.
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Quality Data and the Power of Prevention

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent address at Meet the Market North America, available here. The views expressed in the post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As many of you know, I care passionately about the success of the Legal Entity Identifier (or LEI).

With the financial crisis in the rear view mirror, it is sometimes easy to forget the forces that converged in 2007 and harmed both our financial markets and our economy. The events of 2008 are indelibly etched into my memory. I remember when many of our country’s economic leaders began closed-door briefings with members of Congress. Concerned about the unfolding financial crisis, the Chair of the Federal Reserve and the Secretary of Treasury plead for help and for an unprecedented financial intervention to stave off another Great Depression. They wanted tools to protect our nation from powerful forces that were pulling the financial system deeper and deeper into distress and potential chaos. At the edge of the abyss, our economic and policy leaders developed a strategy to stabilize our financial system and unlock the halting credit markets. [1]

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Modernizing and Enhancing Investment Company and Investment Adviser Reporting

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Good morning, everyone. This is an open meeting of the Securities and Exchange Commission on May 20, 2015 under the Government in the Sunshine Act.

The Commission today will consider two recommendations of the staff to modernize and augment the information reported by both registered investment companies, which include mutual funds and ETFs, and investment advisers. These proposals are part of a series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry. We will discuss the two recommendations together and then will vote separately on each following the discussion.

The oversight of funds and advisers is one of the most important functions of the Commission. Over the past 75 years, our regulatory program for asset management has grown and adapted, guided by our mission, to address the challenges of this important, ever-evolving and growing area of our financial markets. Today, we once again are doing that.

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Effective Regulatory Oversight and Investor Protection Requires Better Information

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is said that, “knowledge is power.” Knowledge, however, requires information. And there is no doubt we live in an age of information. The advent of the Internet and the breathtaking technological advances we have witnessed over the last few decades have given us access to more information than at any time in history. The available data seems to be limitless—and all available at the touch of a fingertip.

Yet, when I joined the Commission, it quickly became apparent that the SEC did not have the breadth and quality of information necessary to do its job effectively. As our country experienced the worst financial crisis since the Great Depression, and, as things began to unravel, I sought data and information to analyze the impact of what was occurring—only to find that much of the information available to the Commission was missing, stale, or incomplete.

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SEC Implements Dodd-Frank Reporting and Dissemination Rules for Security-Based Swaps

The following post comes to us from Arthur S. Long, partner in the Financial Institutions and Securities Regulation practice groups at Gibson, Dunn & Crutcher LLP, and is based on the introduction of a Gibson Dunn publication; the complete publication, including footnotes and charts, is available here.

Implementation of the derivatives market reforms contained in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) may fairly be characterized as a herculean effort. The Commodity Futures Trading Commission (CFTC) has finalized dozens of new rules to implement Title VII’s provisions governing “swaps.” Although Title VII requires the Securities and Exchange Commission (SEC or Commission) to implement similar provisions for “security-based swaps” (SBSs), the SEC’s rulemaking process has lagged the CFTC’s.

Earlier this year, the SEC finalized two of its required rules: one (Final Regulation SBSR) governs the reporting of SBS information to registered security-based swap data repositories (SDRs) and related public dissemination requirements; the other covers the registration and duties of SDRs (SDR Registration Rule). Additionally, the SEC published a proposed rule to supplement Final Regulation SBSR that addresses, among other things, an implementation timeframe, the reporting of cleared SBSs and platform-executed SBSs, and rules relating to SDR fees (Proposed Regulation SBSR). Comments on Proposed Regulation SBSR must be submitted to the SEC by May 4, 2015.

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Resolution Preparedness: Do You Know Where Your QFCs Are?

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mr. Ryan, Frank Serravalli, Dan Weiss, John Simonson, and Daniel Sullivan. The complete publication, including appendix, is available here.

In January, the US Secretary of Treasury issued a notice of proposed rulemaking (“NPR”) that would establish new recordkeeping requirements for Qualified Financial Contracts (“QFCs”). [1] US systemically important financial institutions (“SIFIs”) and certain of their affiliates [2] will be required under the NPR to maintain specific information electronically on end-of-day QFC positions, and to be able to provide this information to regulators within 24 hours if requested. This is a significant expansion in both scope and detail from current QFC recordkeeping requirements, which now apply only to certain insured depository institutions (“IDIs”) designated by the FDIC. [3]

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Keeping It Private—Tough Disclosure Issues in Take-Private Transactions

Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf and Norbert B. Knapke II.

One of the tougher issues buyers face when engaging in preliminary discussions regarding a potential going-private transaction is whether and when an amendment to required SEC stock ownership disclosures needs to be filed as steps are taken to advance the transaction. Recent settlements between the SEC and officers, directors and major shareholders for failure to update their stock ownership disclosures to reflect material changes—including steps to take a company private—illustrate the importance of careful consideration of these issues when pursuing a going-private transaction.

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SEC’s Swaps Reporting and Disclosure Final Rules

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Troy Paredes, Samuel Crystal, and David Kim.

On February 11, 2015, the Securities and Exchange Commission (SEC) released two final rules toward establishing a reporting and public disclosure framework for security-based swap (SBS) transaction data. The SEC’s Commissioners had voted in January to approve the rules, 3 to 2. [1] These rules are the SEC’s first substantive SBS requirements since the SEC began laying out its cross-border position through final rules in June 2014. [2] Chair White has consistently stressed the need to complete substantive SBS requirements and now appears willing to do so even when the SEC Commissioners are divided.

The SEC rules diverge from existing Commodity Futures Trading Commission (CFTC) requirements in some key ways. These divergences will create technical complexity for dealers who have built systems and processes to meet already live CFTC regulations. For example, the SEC’s broader, more exhaustive, and possibly repetitive scope of “Unique Identifier Codes” (UIC) will be problematic for market participants. A less obvious problem will be the SEC’s requirement to report SBS data within 24 hours (until modified by the SEC as the rule suggests), as dealers will likely want to delay public dissemination for as long as possible which will run counter to their existing set-ups for the CFTC requirement to report to a swap data repository (SDR) “as soon as technologically practicable.”

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